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Analysis indicates UK construction activity is moving out of the capital

The value of all construction contract awards in June 2019 was £5.2 billion based on a three-month rolling average, which is an increase of 5.5% on May. Regional analysis shows that the North West was the leading region for contract awards in June with a 36.6% value share.

Barbour ABI

The latest edition of the Economic & Construction Market Review from industry analysts Barbour ABI highlights levels of construction contract values awarded across Great Britain. The overall outlook for June contract awards increased by 5.5% on May 2019. The infrastructure sector accounted for 37.2% of total value of contract awards, due to the SPRS. Construction Programme at the Sellafield Site – valued at £1.5 billion, which boosted the North West’s project share.

Barbour ABI

London dominated in only two of the eight sectors for June 2019 – residential with a 26.2% share and commercial & retail with a 23.7% share of total contract awards. Construction activity has moved out of the capital for June, with a more even spread of contract awards across the UK. The East Midlands dominated the industrial sector, largely due to investment in warehousing and storage. The South West took the top spot for hotel, leisure & sport and Scotland took the lion’s share of projects in the medical & health and education sectors.

Commenting on the figures, Tom Hall, Chief Economist at Barbour ABI said “London has dominated project awards every month in 2019. However, for the first time this year, we see a shift in the spread of project awards across the country. Likewise, for the first time this year, we see infrastructure investment overtake the residential sector which has been the most active sector of construction for over 6 months.”

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Residential sector looking positive

The residential sector had a particularly positive February with £1.7 billion contracts awarded, an increase of 13.1% on January. Residential unit numbers also increased – up by 5.4% on January at 9,850 units. Following residential in terms of contracts awarded was infrastructure with a 13.9% share and education with a 12.3% share.

Barbour ABI

The latest edition of the Economic & Construction Market Review from industry analysts Barbour ABI highlights levels of construction contract values awarded across Great Britain. This month it shows the total value of construction contracts awarded in February 2019 was £5.4 billion which is a 0.5% decrease on January, but 10.6% higher than February 2018.

The top project awarded during February was the £250 million redevelopment of Chelsea Barracks which sees Multiplex Construction Europe provide a total of 88 residential units in a single 5 storey structure. The largest infrastructure contract was the £110 million redevelopment of the former Royal London Hospital site in Tower Hamlets to provide a new civic centre and council offices. The largest overall education contract was in Edinburgh and was the £90 million redevelopment and extension of the Darwin Building for the University of Edinburgh.

Barbour ABI

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Storage space boom – warehouse construction on the rise

As the popularity of online shopping continues to increase, the demand for storage space has followed, with an estimated £3 billion worth of contracts outlined for the construction of industrial warehouses across the UK in 2018.

According to construction analysts Barbour ABI, the first three quarters of 2018 accumulated £2.2 billion worth of warehouse construction contracts, an impressive increase of £800 million compared to 2016 figures. With the demand for consumer goods continuing to grow and the competitiveness of delivery speeds being of the utmost importance in today’s retail market, businesses are looking for convenient storage space to fulfil these needs to carry on competing.

Barbour ABI

Looking at the figures from a regional perspective, the East and West Midlands lead the way with a combined £2.6 billion worth of warehouse construction since 2016, worth over £400 million more than any other region. The location of the two regions alongside its convenient motorway links and rail connections makes them an attractive option for businesses.

Michael Dall, Lead Economist at Barbour ABI commented, “Since the start of the decade the UK has seen ever increasing numbers of warehouses being constructed as firms re-aligned their offer to meet the increasing propensity of consumers to shop online. From fashion to food, the need for more storage space to deliver to customers quickly and efficiently has resulted in a boom for warehousing construction.”

“With an increasing amount of shopping taking place online, we expect the number of warehousing construction contracts to continue to increase. In 2017 Barbour ABI recorded a 22% increase compared to 2016 and it is likely we will see a similar increase in 2018. With a number of these being Amazon warehouses, and considering the ambitious growth plans they have, this is clearly an area of construction that is primed for growth.”

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The UK construction outlook is positive despite challenges

Despite worries surrounding Brexit, tighter margins and labour supply to name a few, optimism across Britain’s construction sector is relatively high in regards to potential growth and future profits, according to the 2017 Construction Sentiment Survey.

Causeway Technologies and Barbour ABI’s survey of the construction sector – measuring various levels of optimism, growth & obstacles within the industry, found that of those surveyed 71 per cent believe that their company’s revenue is expected to grow in 2017 compared to last year and 63 per cent foresee a growth in profits.

The survey also found that the three biggest issues facing the construction industry are stronger competitors, labour supply and customer demand.

Construction

A large proportion of construction companies (67 per cent) are already implementing cost-reduction measures, however they are more prevalent in larger companies (82 per cent) compared to smaller companies (58 per cent). However, the survey also showed evidence of initiatives for growth, with almost 70 per cent believing that their company is implementing initiatives to fuel growth in 2017.

Colin Smith, Chief Executive Officer at Causeway Technologies commented “The UK construction industry is facing considerable change in the coming years and needs to be well prepared for what lies ahead.”

“Whilst it is clear from the survey that construction professionals remain reasonably optimistic about 2017 with the industry growing steadily since 2013, they are also aware that they face an array of challenges, with a significant number of companies already looking at how they can cut costs and improve efficiency.”

“Identifying the issues is clearly the first step in tackling them, the next stage is for construction companies to introduce the solutions that will help them perform better in the face of the challenges they expect to encounter in 2017.”

Commenting on the figures, Michael Dall, Lead Economist at Barbour ABI, said “Construction firms are looking to “future proof” and expand markets to meet the economic challenges that inevitably lie ahead.”

“The industry appears to be learning its lessons from the years of subdued performance between 2009 and 2012 with many considering closely its initiatives for growth, issues facing their businesses but also ensuring the systems are in place to ensure they can weather any future downturn.”

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Construction figures on the increase across February

Spearheaded by strong performances from the housing and hotel, leisure & sport sectors, overall contract value for the construction industry in February reached £6.4 billion based on a three month rolling average, a 15.4 per cent increase on the same month last year.

According to the latest edition of the Economic & Construction Market Review from industry analysts Barbour ABI, contracts for housing projects reached £2.7 billion in February, the same figure as January 2017, which are the best performing months for residential building since the economic downturn. Coinciding with the strong housing figures, the hotel, leisure & sport sector construction contracts reached £736 million (see figure 1.1) on the month, a substantial 105.3 per cent increase compared to February 2016.

Barbour ABI

Looking across the other sectors within construction; Infrastructure accounted for £1.48 billion worth of construction contracts on the month, a 20.8 per cent increase on January. Commercial & retail projects also increased month on month by 17.5 per cent – the highest since September 2016, although values in the sector remain lower than previously when viewed over the longer term.

However it was the industrial sector that accounted for the most disappointing figures in February, with a 35 per cent year-on-year decrease and its lowest monthly total since October 2014.

Whilst the value of construction contracts remained very strong on the month, the number of projects saw a decline of 19.6 per cent compared with January. Larger, more valuable projects were commissioned in February, including projects such as a £400 million Port of Dover job and the Trafford Park Metrolink extension, valued at £350 million.

Commenting on the figures, Michael Dall, Lead Economist at Barbour ABI, said “After recent slumps in the infrastructure and commercial & retail sectors, it was encouraging to see both bounce back and produce encouraging figures in February, alleviating some of the pressure away from housebuilding.”

“With the hotel, leisure & sport sector recording its highest construction contract value in years, it will give the sector a well needed confidence boost, thanks greatly to a £400 million holiday resort, another major project given the go-ahead in February, a trend that made last month a positive one for construction.”

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Retail construction sees a decline in value but contract numbers hold steady

Even though the internet continues to eat into the share of retail spending (15% market share in October 2016), this has not detracted the industry from building in 2016, albeit showing a widespread trend towards smaller project contracts.

According to the ‘Does retail offer real opportunity?’ report from construction industry analysts Barbour ABI, the key change in work coming from the sector is that construction projects are smaller, fitting in with the emphasis that is being placed, especially by larger retailers, towards an nincrease in smaller, more local retail units.

Retail construction accounts for £4.7 billion pounds a year, down from the £8 billion pre-recession peak. The report also describes how physical stores are still pivotal to the strategies of most retailers, as major opportunities look to be available over the next few years, particularly for architects who can rethink retail space and develop nexus between the physical and digital shopping experience.

Across 2016, the twenty largest retail projects accounted for a value of more than £570 million, with £421 million coming from the South of England which is 74 per cent of the total. However, interestingly it was the North West of England that led all regions with the highest overall number of contracts in the retail sector over the 12 months to September (see fig 1.1).

The two largest projects by value in retail construction last year were the Charter Place shopping Arcade in Watford valued at £178 million and the £75 million O2 retail village outlet in London.

Commenting on the figures, Michael Dall, Lead Economist at Barbour ABI, said “Ultimately today’s retailer is looking to improve the experience of their customers. That has been reflected in how they design and use the buildings they occupy, which has ultimately resulted in smaller, more frequent projects, making up for the declining overall value of retail work over the past five years for the construction sector.”

“The value of work may have shrunk, but the number of projects being let by retail clients is holding steady, providing similar numbers of opportunities to impress clients.”

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Good and bad news for construction last month

After more than two months since the Brexit vote, it’s good news for the residential construction sector, as the value of contracts awarded reached £1.7 billion in August, an increase of 13% compared to the same time last year, based on a three month rolling average.

According to the August edition of the Economic & Construction Market Review from industry analysts Barbour ABI, it was the residential and infrastructure sector that kept the industry on a steady pace last month, delivering £3 billion of the £5.5 billion total construction contracts awarded.

It should also be noted that residential construction across the first two post-Brexit months (July & August) are significantly higher figures than when compared to the same months in 2015.

However even with the strong results from the residential sector, it was not enough to mark an improvement for overall construction new orders as they were down to £5.5 billion in August, a month-on-month drop of £300 million, although this is traditionally a slower summer month.

The commercial & retail sector particularly struggled in August, experiencing a decrease of 43% compared to August 2015, which continues a poor run of performance over the long term for the sector.

Commenting on the figures, Michael Dall, lead economist at Barbour ABI, said: “The construction sector is yet to experience the full post-Brexit effects that were forecasted to occur after the result was announced. The mixed results from the residential sector has still been robust enough to keep the industry in a position to potentially grow in the near and long-term future.

“Developers are also keen to keep progressing with major projects, such as the £750 million Galloper offshore wind farm and the £150 million Greenwich Peninsula residential development commissioned this month alone, which in turn is helping to build confidence and provide a well needed boost across the industry.”

Read the full report here.
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Commercial & retail construction at its strongest for more than four years

The total value for commercial & retail construction contracts in August were worth more than £1.5 billion, the highest in over four years, based on a three month rolling average.

According to the latest Economic & Construction Market Review from Barbour ABI, it was a busy August for the commercial & retail sector but in particular office construction, which dominated the sector for the month with 84 per cent of the total value of contracts awarded.

To put the growth of commercial & retail contract values into perspective, the last three months have each had more than double the value when compared to that in May. August also experienced an increase of more than 70 per cent when compared to the same month last year.

London led all regions with over 60 per cent of the total amount of commercial & retail contract values in August, including eight of the top ten biggest projects. Contracts for major office developments were finalised including the £150m Park Place development in Canary Wharf and the £100m Marble Arch project in Westminster.

Commenting on the figures, Michael Dall, lead economist at Barbour ABI, said “After an unstable start to the year, commercial & retail construction has picked up dramatically to the point where August has been the strongest month for more than four years.”

“It’s not surprising to see London dominating the sector once again. As a global city, we’re seeing more and more demand for office space in the capital, hence the massive projects awarded contracts this month. Even with the recent spike in office construction work being put on hold, this isn’t putting off investors rolling the dice with new projects looking towards the future and the potential gains to be made from London property.”

“Over the last three months and in particular August, demonstrates that there is a major demand for office space and willingness from investors to spend and commit to new projects. The long term growth for this sector is looking positive, and when commercial & retail is strong it can often be a sign that the economy as a whole is performing well.”

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